This month instead of a podcast we’re going to dive into this budget and see what the proposed changes could mean for you, your family or your business.

Budget 2024 – Highlights 

On Tuesday, April 16 the Federal Government released their budget for 2024. This budget earmarks billions in new spending for a wide variety of programs attempting to solve a swatch of problems afflicting Canadians.

If you want to read the budget in its entirety, you can do so here. Be sure to get cozy before you dive in because it’s definitely not light reading at 430 pages.

For a more palatable read, BNN provides a solid, non-partisan summary. And there is no shortage of opinion pieces and editorials from all sides of the political spectrum with a simple Google search.

We’re going to focus on some specific items that we expect will be the most impactful and significant. 

Housing

Housing, or the lack of it, is a significant priority for Canadians and in this budget. To say affordability has been eroded is an understatement, particularly in Canada’s major cities where a modest 2-bedroom condo in Vancouver can easily be priced over $1 million. 

This budget focuses on increasing the supply of housing and relaxing some rules to make it easier to buy a home. Canada Mortgage and Housing states that Canada needs to build 3.5 million homes by 2030 to restore affordability. This budget’s goal is to “unlock” 3.9 million homes by 2031, certainly ambitious.

Increasing Supply:

• Making public land available for housing construction
• Increasing the capital cost allowance rate from 4% to 10% on apartments
• A new Canada Infrastructure Fund to assist with the cost of building
• An increase to the Apartment Construction Loan program

Helping Buyers:

• Increasing the Home Buyer’s Plan from $35,000 to $60,000
• Increasing the amortization on insured mortgages from 25 years to 30 years on new builds

Pharmacare/Disability Benefit

The proposed Pharmacare program will initially provide coverage for diabetes medicine and contraceptives. Though many expect it will expand to cover other medications in the coming years.  It’s been in discussion for some time now and more details have come to light. A new disability benefit totaling $6.1 billion over 6 years and $1.4 billion/year after that. 

Children

For those with school-aged children, the budget looks to make child-care more affordable and available with a Childcare Expansion Loan program offering low-cost loans to child-care facilities to build or renovate.

Additionally, $1 billion is being provided for a national food program that is expected to feed 400,000 additional children. According to the budget, the program is expected to save the average participating family with two children up to $800 a year.

Artificial Intelligence

Of course, no respectable budget in 2024 could go without mentioning AI. 

Ottawa is allocating $2.4 billion towards artificial intelligence initiatives. The bulk of the funds ($2B) will be spent on technical infrastructure and improving access to computing capabilities. The goal is to support Canadian researchers, start-ups, and businesses to develop AI infrastructure in Canada, while also encouraging new technological development in the space. 

A portion will also be spent supporting workers who may have their livelihoods disrupted by AI in the coming years, this will include new skills and training for affected workers.

And now, how we pay for it…

The big change to taxation in the budget is an increase in the Capital Gains Inclusion rate from 50% to 66% on capital gains above $250,000 for individuals. The capital gains inclusion rate increase applies to corporations and trusts as well, but there is no minimum.

What does this mean? 

Firstly, a capital gain is defined simply as the difference between what you paid for an asset and what you sold it for. Eg. if I buy a stock for $1,000 and sell it for $1,500, I’ve made a capital gain of $500. Similarly, if the stock had gone down in value to $500, I would have a capital loss of $500.

The current 50% capital gains inclusion rate means that on my $500 gain above, I’d have to include $250 (50% of the gain) in my income for the year and it would then be taxed at my marginal income tax rate. The change of the inclusion rate to 66% means that $330 (66% of the $500 gain) would be taxed at my marginal tax rate. This illustration only applies to you for realized Capital Gains above $250,000.

In the presented budget, the government states that this increase will affect 0.13% of Canadians and 12% of corporations. This change would go into effect June 25, 2024.

Note, that there has been no change to the Lifetime Capital Gains exemption, which provides an exemption from Capital Gains tax on the sale of qualified small business corporation shares and qualified farm or fishing property up to a certain amount. In addition, the budget proposes to increase the exemption amount to $1.25 million (from $1,036,816) and continue indexing the exemption amount to inflation in 2026.

Make no mistake though, this is a significant change to taxation in Canada. The government anticipates raising an additional $19 billion in tax revenue over 5 years.

Who will this affect?

All of our clients with non-registered accounts will have capital gains and losses in their accounts, the $250,000 limit is high enough that it would be very unlikely that a client would come close to that amount in realized gains in a year. As an example, let’s say a client started the year with $1 million in their non-registered account and it returns 25% during the year, that’s $250,000. However, this is an unrealized gain, until those positions are sold the capital gain is not taxed and the timing of the sale can be managed to minimize it and ensure we stay below the higher inclusion threshold, though this would have to be done across all capital assets sold for a gain/loss by the individual that year.

In the coming weeks and months, we’ll see exactly who is significantly impacted by this change and in what situations. My first thought was for one-time sales of large ticket items, think a second home or cottage. 

I know no one enjoys new taxes, but here’s a thoughtful, well-reasoned defense of the tax change. And for good measure, here’s a rebuttal by the same publisher.

If you have specific questions or concerns on how this change to the capital gains inclusion rate will affect you, please reach out to us directly. We’d be happy to discuss any concerns you have and potential solutions to minimize your tax liability. info@towerasset.ca

Regards,

Tarek & Mark